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June 04, 2009

A MULTINATIONAL CORPORATION: NIKE

Introduction

A multinational
corporation (MNC) is a corporation that ventures and manages production
establishments in at least two countries from anywhere in the world. MNC is
subdivided into three groups, the horizontally integrated MNC, the vertically
integrated MNC and the diversified MNC group.

In this paper, we would
explore one American MNC, specifically the Nike, Incorporated, and look into as
to how the firm prices its revenues and cost in terms of currency denomination.
Further, we would assess how the dollar exchange rate has an effect on the
firm’s profitability.

Main Part

Nike Inc. coined from the Greek’s
goddess of beauty, in retrospect, started out in 1964 as Blue Ribbon Sports in
Oregon with two business partners and co-founders namely, . All over
the world Nike has been known in their swoosh trademark and as the leading
manufacturer of innovative athletic shoes, apparels and sports equipments.
Further, Nike has four subsidiaries that include, , Converse and Hurley
International. Currently, Nike has 137 factories in the Americas, 104 in the
EMEA and 490 factories in Asia.

The inevitable alteration and somewhat unpredictable currency exchange rates
have an impact on the revenue growth such that it may reduce the growth instead
of gaining full growth. It is important for MNC’s to be wise enough to come
with means to constantly cost-optimized the cost to generate higher revenues and
strategically plan for a long-term basis.

From the financial reports of March
of 2006 (figure 1), Nike posted a 3rd quarter revenues increasing
nine percent compared from 3rd quarter from last year but with a 3
percent reduction in the revenues brought about by the changes in currency
exchange rates. Moreover, Nike reported future orders that amounted to $5.4
billion, 2.9 percent higher from last year, even with the fact that the currency
exchange rate has reduced this growth.

The effect of value of
the dollar in the currency exchange rate as it increases would generate
profitability for Nike such that the cost of sales is kept at minimum due to the
fact that Nike’s factories operates mostly from Asia which is known to have low
labor cost. When it will be marketed to the disparate parts of the world, the
high value of dollar would contribute as the market would buy it at a high
price. Whereas, if the value of dollar is low, eventhough the cost of sales is
kept at minimum, the generation of profit is relatively low also. Therefore,
the currency exchange rate is indicative of the maximization of profit.